Introduction To Economics Some key definitions: What is Economics?

The study of how communities/society decides what, how and for whom to produce. Is there a particular way to study Economics? The study of Economics is conventionally split into two areas; MACROECONOMICS and MICROECONOMICS, most topics in Economics are classed under one of these two headings. Although quite often you will find a significant degree of overlap. What is Microeconomics? The study of the behaviour of individuals or groups within the economy. What is Macroeconomics? The study of the economy as a whole. This is the UK economy, the European economy and the World economy. But obviously as we live in the UK most of our study will be concerned with the UK economy. As such there are a few skills that are rather useful in studying Macroeconomics. A knowledge of current economic events (what is inflation, what is government economic policy, what does the opposition believe, etc.); statistical analysis - to be able to interpret data, graphs, charts, etc. and draw conclusions about what is happening. What is an Economy? A community or system within that community that attempts to solve the basic economic problem of SCARCITY. To understand what economics is trying to do we must explore certain key concepts. The Central Economic Problem - Scarcity Exists due to three characteristics of our society: 1. Wants are unlimited (distinguish between wants and needs). 2. 3. The resources of land, labour, capital and enterprise that are available to produce goods and services are limited (scarce). Most resources have alternative uses, e.g. land can be used to grow wheat, potatoes or corn or it can be used as the site for a factory or a house. Labour can be employed on a farm or in factory, etc.

Scarcity or Unlimited Wants and Limited Resources; arises due to points 1 and 2 above. Therefore scarcity implies choice - we must prioritise the resources we want, as we cannot have everything. Choice; therefore arises due to scarcity in conjunction with the third point above. We must choose how resources are to be allocated amongst their competing uses. E.g. how much labour should go into producing wheat and cars, etc. The Central Economic Problem; is defined as the allocation of scarce resources among competing uses for the satisfaction of consumers' wants. The Allocation of Scarce Resources; is what economics is all about, because resources are scarce we must find some way to share them out. Deciding, what to produce, how to produce it and for whom to produce it. Economic Systems; are solutions to the economic problem. They are methods of providing answers to the three basic economic questions. There are 4 main types of economic system. 1. The Traditional Economy. 2. The Market Economy. 3. The Centrally Planned Economy. 4. The Mixed Economy.